How important is price?

21 Sep
21 september, 2009

If you ask your customers what their most important criteria are for choosing a supplier, most will say: “Number one is ‘price’. Number two is ‘quality’.”

They’re lying.

But it’s not a deliberate lie. We humans answer the question asked, and this is simply the wrong question to ask. The only time it has any relevance, and the only time it will be answered truthfully, is if everything else is identical between all competing alternatives.

Which, of course, never happens.

But, if you ask which brand on the market customers prefer, and then identify what customers believe makes that brand better than the competition, you will come much closer to the truth. Their key differentiating criteria will revolve around factors like ‘confidence’, ‘relationship’ and ‘service’. Price will be ranked further down the list.

When your sales force or customers start insisting that you must lower prices, it is therefore not necessarily your price that is wrong. The problem is more likely to be that customers do not feel they are getting sufficient value for the price you charge for your product.

What each buyer is really interested in is value. And the value of anything is the sum of the benefit divided by the price: Value=benefit/price.

You can choose either to reduce your price, and thereby increase relative value (”I may not be getting much, but I’m not paying much either”). Or, you can enhance the perceived benefit (”I am really getting value for the money I pay”).

The thing is that customers always strive to pay as little as possible. And a good salesman always does everything possible to justify the highest price he can possibly get.

This does not necessarily mean that all customers want to pay as little as possible, and all salesmen want to be paid as much as possible. The price range – which both seller and buyer are already mentally equipped with – is based not only on which business category your brand is associated with, but also its perceived market position within that category.

In short: You get the customers you deserve.

By that I mean that, if your customers are only interested in your price, it’s because you haven’t given them something else to be interested in. Your customers feel that your main competitive advantage is your price tag, and that your company is more or less offering a commodity.

But, if your business for instance is recognized as more competent in its field than any other company – i.e. the competence leader (implying high credibility and a good reputation) – you can be much better paid for delivering an identical product or service. The customer, quite simply, perceives a greater business value.

Your job as a salesperson, and that of any marketing communication, is therefore to convince customers that your brand offers more value; and that that value differs in a relevant way from any other competitor’s offering. But you must also get the customer to really believe that the promised value will be realized. Last, but not least, you must get the customer to like your brand.
If you manage this entire chain, any price discussion will be marginalized.

Finally: Remember that, the moment a client asks for the price of the product, you have a very strong buying signal.

And that you’re actually selling value.

Tags: , , , , , ,
0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Kommentera

E-postadressen publiceras inte. Obligatoriska fält är märkta *